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Controlling and Reporting of Cash and Receivables
Reporting and Analyzing Receivables
Accounting Textbooks Boundless Accounting Controlling and Reporting of Cash and Receivables Reporting and Analyzing Receivables
Accounting Textbooks Boundless Accounting Controlling and Reporting of Cash and Receivables
Accounting Textbooks Boundless Accounting
Accounting Textbooks
Accounting
Concept Version 5
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Classifying Receivables

Receivables can be classified as accounts receivables, trade debtors, bills receivable, and other receivables.

Learning Objective

  • Distinguish between accounts receivable, trade debtors, bills receivables and other receivables


Key Points

    • Accounts receivable is the money owed to that company by entities outside of the company. Trade debtors are the receivables owed by the company's customers.
    • Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months (non-current receivables).
    • Not all accounts receivables will be paid, and an allowance has to be made for bad debts. The allowance for bad debts can be calculated either as the percentage of net credit sales or by the ageing method of estimating bad debts.

Term

  • allowance for bad debts

    Since not all customer debts will be collected, businesses typically estimate the amount of and then record an allowance for doubtful accounts which appears on the balance sheet as a contra accounts that offsets total accounts receivable. When accounts receivable are not paid, some companies turn them over to third party collection agencies or collection attorneys who will attempt to recover the debt via negotiating payment plans, settlement offers or pursuing other legal action.


Full Text

Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. In most business entities, accounts receivable is typically executed by generating an invoice and either mailing or electronically delivering it to the customer. In turn, the customer must pay it within an established time frame, which is called the credit terms or payment terms.

An example of a common payment term is Net 30, which means that payment is due at the end of 30 days from the date of invoice. The debtor is free to pay before the due date. To encourage this, businesses can offer a discount for early payment. Other common payment terms include Net 45, Net 60, and 30 days end of month.

On a company's balance sheet, receivables can be classified as accounts receivables or trade debtors, bills receivable, and other receivables (loans, settlement amounts due for non-current asset sales, rent receivables, term deposits). Accounts receivable is the money owed to that company by entities outside of the company. Trade receivables are the receivables owed by the company's customers. Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months (non-current receivables) .

Balance sheet

Sample balance sheet

Not all accounts receivables will be paid, and an allowance has to be made for bad debts. The allowance for bad debts can be calculated either as the percentage of net credit sales or by the ageing method of estimating bad debts. These are determined by historical accounting information. Accounts receivable therefore can be classified according to their age. The Accounts Receivable Age Analysis Printout, also known as the Debtors Book is divided in categories for current, 30 days, 60 days, 90 days, 120 days, 150 days,180 days, and overdue.

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